Roadblock ahead: legislation and a coalition of car manufacturers and privacy advocates are poised to restrict auto insurers' access to "black box" data.

Key Points

* An event data recorder is an electronic device that tracks information during an accident and records information for a few seconds of time before, during and after the vehicle collision.

* Between 65% and 90% of new cars and light trucks will be equipped with event data recorders in the next few years.

* California has enacted a law to deny, or at least restrict, access to recorded data.

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When insurance companies identify a new source of information or type of data that improves products and services for customers, legislation or regulations to ban or restrict the innovation often follow. The motor vehicle event data recorder, or "black box," may be next.

An EDR is an electronic device that tracks information during an accident and records information for a few seconds of time before, during and after the vehicle collision, such as speed at impact and braking patterns. According to the National Highway Traffic Safety Administration, an estimated 15% of the passenger autos and light trucks presently on the road are equipped with EDRs, and between 65% and 90% of new passenger and light truck models will be so equipped in coming years. According to the Insurance

Research Council Public Attitude Monitor 2002, only about a third of Americans have heard about the use of these devices in private passenger vehicles. Drivers' awareness of the so-called "black box" may rise in 2005.

These EDRs and sensing and diagnostic modules are designed to capture performance data relating to specific vehicle equipment. They also are available in the after-market product area. These devices can benefit many motorists, traffic and safety-control officials, law enforcement agencies, vehicle manufacturers, vehicle-repair personnel and insurers.

For insurers, data downloaded from an EDR or SDM can be used for a variety of claims, rating and underwriting purposes. Many insurers already have discovered the value of the data stored in these devices for claims investigation and adjusting and are making extensive use of this capability. Others only have begun to explore the possibilities. To date, for the most part, insurers have not been using these particular devices for rating or underwriting.

Legislation to curtail the use of this technology is being created almost as fast as the technology itself. California enacted a law to deny, or at least restrict, access to recorded data, even for a variety of legitimate uses. During the past year or more, copycat legislation surfaced in several states: Maryland, Massachusetts, New York, Pennsylvania, Tennessee and Virginia. None was enacted, but the issue is expected to be alive and well as most state legislatures reconvene in the spring of 2005. Legislation touching upon facets of the EDR issue is already pending in 10 states: Alaska, Arkansas, Montana, New Hampshire, New Jersey, New York, North Dakota, Tennessee, Texas and Virginia.

Laws, Regulations and Legislation

Section 9951 of the California Vehicle Code requires motor vehicle manufacturers to disclose the presence of an EDR to the buyer. NHTSA has proposed similar federal regulations, allowing such disclosures to be contained in the owner's manual, but the California Legislature didn't stop there.

In 2003, the California Legislature was very involved with the issue of privacy. Unfortunately, the presence of EDRs in a vehicle became cast as a potential invasion of privacy. As a result, aside from the disclosure requirement, the California law also restricts access to data from EDRs unless the vehicle owner provides consent, by court order or under several other limited conditions. Insurers are not exempted.

Much of the EDR legislation has been patterned after the California law, aided by the fact that motor vehicle manufacturers have drafted and promoted a model bill nationwide. Although this model contains some improvements, it remains problematic for insurers.

In states with EDR legislation, the Property Casualty Insurers Association of America is seeking amendments that balance consumer/driver privacy vs. legitimate insurer needs and uses for the recorded data, by providing the following exemptions: claims adjusting and investigation, fraud investigation, loss control and research, as provided by contract and as otherwise required or permitted by federal or state law.

Privacy Debate

Other results from the IRC's Public Attitude Monitor explain why EDRs are sparking a public policy debate. Slightly less than half of the respondents favored using this data to investigate or determine fault in vehicle accidents. Only 24% favored having a data recording device installed in their vehicles that would allow insurers to verify miles driven. While not a survey on privacy attitudes per se, the results, at least in part, evidence a privacy theme.

For insurers, there are two ways to address these privacy concerns. The first is to identify legitimate insurer needs and uses for such data, and to balance those with consumer/driver privacy concerns.

Consider the following:

* The only information recorded by EDRs is "crash-pulse" data; that is, how specific vehicle equipment or systems operated shortly before a collision or triggering event. Unlike airline "black boxes," the devices do not record conversations by drivers or passengers.

* Congress, state legislatures and state insurance departments have taken steps to protect sensitive personal financial and medical information. To attempt to lump generic vehicle speed, steering, braking, headlight illumination, air bag deployment and seatbelt status under the same sort of "affirmative consent" system is unnecessary, and trivializes the much greater importance of the financial and medical information.

* Along with police reports, witness statements, a photograph of the vehicle and physical evidence from the accident scene, EDR data may help the investigation and reconstruction of vehicle accidents. Adjusters often photograph a damaged vehicle at the body shop without costly delays and restrictions. They also should be able to simply download generic data from an EDR.

* Automobile insurance policies contain language 'requiring the insured/driver to cooperate with the insurer in investigating the accident and adjusting the claim. This includes allowing access to the vehicle and its contents. EDRs are a component part of the vehicle.

* While EDR technology has been around for many years, it also must be noted that technologies and their uses evolve quickly. Policymakers may be premature in enacting legislation based upon assumptions that quickly may become as obsolete as the technology they seek to regulate or restrict.

The second key is to identify consumer/driver benefits from allowing insurer access and the costs of prohibiting such access:

* Sometimes, unfortunately, there are no living witnesses to serious collisions. This data takes on increased importance in these situations, yet such laws make no exception to allow insurers to overcome this lack of a reliable witness in order to settle the claims of surviving family members.

* Like auto manufacturers and safety agencies, which are exempted, insurers need access to this data for loss control and prevention activity to promote highway and vehicle occupant safety.

* Requiring court orders to obtain access to EDR data encourages unnecessary litigation, adds unnecessary expense for policyholders and delays claim payment.

Criminal vs. Civil

Additionally, neither the California law nor the manufacturers' model provides an exemption for law enforcement. Some would argue that insurers should have no greater access than the police. The salient difference is that the police are investigating potential crimes on behalf of the government and, as such, are subject to the "search and seizure" strictures of the Fourth Amendment to the U.S. Constitution, as well as similar provisions in various state constitutions. While it may be appropriate to require a court-issued search warrant before law enforcement may download this data as part of a criminal investigation, it would be inappropriate to impose such burdens upon private insurance companies involved in performing contractual duties or engaging in civil litigation.

Underwriting and Rating

Both the California law and the manufacturers' model also apply to a device that "has the ability to transmit information concerning a crash in which the motor vehicle has been involved to a central communications system when a crash occurs." Aside from the claims-related aspects to this clause, there are also potential rating and underwriting implications, since some devices can transmit both crash-related information and noncrash-related information, such as mileage, driving location, garaging and hours of operation. Given the IRe results noted earlier, insurers that may be experimenting with "pay as you drive" or mileage-based systems would be well advised to review the California law and the model bill, as well as keep a close eye on state legislative developments in 2005.

Rey Becker is vice president of the Property Casualty Insurers Association of America.